Incomplete FBAR Offshore Disclosure Leads to More IRS Penalties (Board-Certified Tax Specialist)

Incomplete FBAR Offshore Disclosure Leads to More IRS Penalties (Board-Certified Tax Specialist)

Incomplete FBAR Offshore Disclosure Leads to More IRS Penalties

2019 seems to the year of the FBAR. Over the past year, there have been a number of different IRS cases involving the U.S. Government and the issue of FBAR Penalties.

Incomplete IRS Offshore Disclosure

On several occasions, the IRS has been able to prevail on summary judgment, and even on the issue of FBAR willfulness — which can lead to excessive fines and penalties.

An incomplete IRS Offshore Disclosure makes it that much easier for the IRS to issue heightened penalties.

FBAR Penalties & Incomplete Disclosure

In the case of U.S. vs. Vinci, an incomple offshore disclosure submission may result in nearly $3M in penalties.

(The penalty structure for OVDP was less (in most cases) than it is today under the revised traditional voluntary disclosure).

Incomplete Offshore Disclosure

Two major mistakes taxpayers make with offshore disclosure is the following:

  • Incomplete submissions
  • Inaccurate reporting

The IRS Already Warned Taxpayers About Incomplete Offshore Disclosures

Last year, the IRS rolled-out several new enforcement campaigns, and one of them was OVDP withdrawals (which is equivalent to an “incomplete offshore Disclosure).

As previously provided by the IRS:

OVDP Declines-Withdrawals Campaign

The Practice Area is Withholding & International Individual Compliance

Lead Executive: Pamela Drenthe

The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers to voluntarily resolve past non-compliance related to unreported offshore income and failure to file foreign information returns.

This campaign addresses OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord.

Taxpayers, who have yet to resolve their non-compliance and who meet the eligibility criteria, are encouraged to consider entering one of the offshore programs currently available.

The IRS will address continued noncompliance through a variety of treatment streams including examination and letters.

U.S. vs. Vinci (Case No. 8:19-cv-02441)

Here is a summary of the United States’ case against Vinci.

Relevant portions of the Complaint are included below:

Vinci Owned Multiple Offshore Accounts and Properties

Vinci Owned Multiple Offshore Accounts and Properties

Vinci was a wealthy foreigner, who relocated to the U.S. in 1992.

10. Vinci was not employed while living and residing in the United States, and lived off of the fortune he had made while living in Venezuela, including rental income that he received from properties he still owned in that country.

That income was almost exclusively held in offshore bank and investment accounts for the years at issue.

Vinci Never Filed Returns, and Applied to OVDP to get Compliant

After realizing the severity of not filing U.S. tax returns, and not reporting his offshore accounts, assets, investments, and income, Vinci wanted to make it right, so he entered OVDP.

11. After moving to the United States, Vinci filed no federal income tax returns, or information returns for foreign corporations, or FBARs with the Internal Revenue Service, as required by law, until 2011.

12. In 2011, Vinci applied to the Internal Revenue Service’s 2012 Offshore Voluntary Disclosure Program (“OVDP”). 

As described on the IRS’s website, OVDP was “a voluntary disclosure program specifically designed for taxpayers with exposure to potential criminal liability and/or substantial civil penalties due to a willful failure to report foreign financial assets and pay all tax due in respect of those assets. OVDP [was] designed to provide to taxpayers with such exposure (1) protection from criminal liability and (2) terms for resolving their civil tax and penalty obligations.”

In Vinci’s letter seeking admission to OVDP, he disclosed that he possessed foreign financial accounts in Venezuela; in Antigua; and in Switzerland through Citi Private Trust.

Defendant had a Complex Offshore Business Structure

Defendant had several accounts overseas with more than 10 accounts in Switzerland Alone.

20. Vinci informed the Service that he – with the assistance of counsel in the United States – created a complex foreign structure in Switzerland consisting of a foreign corporation and a trust in order to conceal his assets from the Venezuelan government.

21. Vinci incorporated a foreign entity, Mosquetero, SP, in Scotland, and created a grantor trust (“Trust”), the Trustee of which was Citi Private Trust, located in Zurich, Switzerland.

22. According to Vinci’s filings with the IRS, Mosquetero’s stock was wholly owned by Vinci through the Trust. Citi Private Trust, as trustee for the Trust, maintained the books and records of Mosquetero in Switzerland.

23. Vinci placed investment accounts in Mosquetero’s name with Citi Private Bank in Switzerland…

Vinci also had numerous accounts in other countries, including Antigua.

Vinci Cooperates (at first) with OVDP

Having represented numerous clients in OVDP, we understand and empathize that it can be a monumental undertaking for some clients:

35. While in OVDP, Vinci filed a Form 5471 (Information Return for U.S. Persons with Respect to Certain Foreign Corporations) for Mosquetero, SP for each of the 2004, 2005, 2006, 2007, 2008, 2009, and 2010 tax years.

These returns disclosed the total balances of Mosquetero’s investment holdings, as well as the income and dividends Vinci received from each.

Vinci Starts to Cooperate Less…

A dispute arose between the parties involving penalties on certain accounts that the IRS was going to issue:

39. After Vinci asserted that the Mosquetero accounts were domestic accounts, the Service proposed to assess the FBAR penalties that are at issue in this case, and Vinci withdrew from OVDP.

40. All told, Vinci failed to disclose his interest in financial accounts with balances in the millions of dollars by filing timely FBARs, and then continued to fail to disclose his interests in the highest-balance accounts while participating in OVDP.

Withdrawal From OVDP vs. Opt-Out

A person can legally Opt-Out of the OVDP penalty structure, and instead agree to be audited in order to try to avoid a larger penalty. This is perfectly legal, and we have represented many clients with successfully reducing an OVDP penalty in OVDP Opt-Out.

Instead of “opting-out,” Vinci withdrew, and left the IRS hanging.

The IRS hates to be left hanging:

42. A delegate of the Secretary of the Treasury gave Vinci notice of the penalty assessments described above and demanded their payment.

43. Despite the notice and demand for payment of the penalties listed in paragraph 41, above, Vinci has failed to pay the penalties assessed against him.

44. Interest and penalties have accrued and will continue to accrue on the penalty assessments above pursuant to 31 U.S.C. § 3717.

45. As of July 18, 2019, Vinci is indebted to the United States in the amount of $2,741,549.31 plus statutory interest accruing thereafter according to law.

WHEREFORE, the United States of America respectfully prays:

A. That the Court enter judgment in favor of the United States and against Pietro Vinci in the amount of $2,741,549.31 for the total amount of the assessments made against him under 31 U.S.C. § 5321(a)(5), as set forth in paragraph 41, above, plus such additional amounts, including statutory interest, which have accrued as of July 18, 2019 and will continue to accrue as provided by law;

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

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Golding & Golding specializes in IRS Offshore and Voluntary Disclosure. Contact our firm today for assistance with getting compliant.